Monday, June 26, 2006

Look, but don't touch

This piece below appeared in last week's Hafta mag. Picture courtesy is Cybernoon.com.

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One hoarding is placed quietly above City Bakery, Worli. It reads “Italian marble, German kitchen, Swedish wood.” Pause. “Indian landmark”. The other – and larger – hoarding opposite Cadbury, near Mahalakshmi Temple, reads “Of course, you’ll look down on your neighbours”. Pause. “We’re Bombay’s tallest building”. Both ads also mention “Address. By invitation only”. You do need to be someone to buy a house at Lodha’s Builders new skyscraper – “Bellissimo”. That’s Italian for gorgeous. At the going rate of Rs12,500/sqft, a 2,000sqft flat (don’t ask for a smaller flat, they have none) in this spiffy skyscraper, would put you back by Rs2.5crore. And that excludes parking, which could cost about Rs5lakhs. Yes, a crore just doesn’t fetch that much nowadays.

Opening the space

Archaic regulations such as the Urban Land Ceiling Act (ULCA) and Rent Control Act, and a clear lack of resolve on the part of the many State Governments to amend these, have been among the factors responsible for Mumbai’s astronomical real estate prices. CB Richard Ellis estimates office rent in Mumbai CBD at US$55/sqft/annum - almost on par with midtown Manhattan, New York.

On the ULCA in particular, the Maharashtra State Government finds itself in a messy bind. The Jawaharlal Nehru Urban Renewal Mission (JNURM), which was launched by the Central Government to develop major Indian cities, requires the ULCA to be repealed if Maharashtra is to get funding for vital infrastructure projects for Mumbai. While other states, faced with a similar situation, have agreed to repeal the act, our dear state continues to dither and drag its feet. Scrapping of the act would mean that the Government would lose control over land tracts, which would then become available for development.

Supply of land is another key constraint. The redevelopment of Mumbai’s Mill Lands was finally cleared by the Supreme Court in a controversial case over 400 acres of prime Mumbai property. These are currently occupied by financially unviable mills belonging to the National Textile Corporation as well as textile companies like Bombay Dyeing, Century Textiles, etc. While a part of these mill lands had been sold to a clutch of builders in June/July 2005 – including Lodha, who’s Bellissimo will be built on the Apollo Mills land – a large portion of the land, eligible for development, is yet to hit the market. Optimists are of the hope that supply of these lands would bring down property prices over the next couple of years.

Opening up of the salt pans in Wadala – another controversial issue – has run into trouble with various bodies like the MHADA, the Maharashtra Chamber of Housing and Industry and the Bombay Municipal Corporation taking different views on development of these lands. Talk of opening up of the Bombay Port Trust’s lands remains largely in the air.

Getting crowded

Even as central and eastern Mumbai gear up for a potential change in landscape, the suburbs have already undergone a transformation. Courtesy, builders who capitalised on the concept of Transferable Development Rights (TDR). Introduced in 1991, TDR was given to builders in return for surrender of their lands to the state for public purposes such as roads, schools and slum rehabilitation projects. Loosely translated, the TDR allowed builders to develop land in Mumbai’s suburbs. But with land already in shortage, where would the developers build? The answer, courtesy this time of a higher floor-space-index (FSI), was on top of existing buildings as well as erecting new, and taller, ones after demolishing the older and smaller buildings. TDR was also acceptable to housing societies who gave up their property to get additional land in the new structure and a fat cheque from a corpus handed over by the builder to the society based on the area of its building.

Bandra is among the best (worst?) examples on the use of TDR. It now bears an entirely different look, thanks to an average three floors being added to most of the existing older structures. Obviously, this development came without any increase in infrastructure. Consider this – in 1991, Bandra’s population density had already risen 40% over a decade to 50,000 people per square kilometre as against 19,000 in Colaba. While the current number for that statistic is not available, Bandra’s current state of congested roads and traffic jams – representative of almost any other suburb – shows that things have only gotten worse.

Interesting times

A study conducted by Mark Thornton at the Ludwig von Mises Institute (USA) stated that “construction of skyscrapers that qualify as the “World’s Tallest Building” tends to coincide with the major downturns in the economy.” He pointed to a “skyscraper index” created by economist Andrew Lawrence that showed that the Great Depression of the 30s in the USA coincided with the completion of the Chrysler Building in 1930 and the Empire State Building in 1931. No prizes for guessing the link here. The snazzy (snobbish?) Bellissimo ads have come roughly around a collapse on the BSE Sensex. However, the overall health of the economy seems to be in shape and the sharp Sensex decline has been attributed to a global correction in equity indices following fears on rising interest rates et al.

To be fair, on the last two trading days of last week, the Sensex did rally up by about 10%. For their sake, M/S Lodha should hope that this optimism lasts. Or else, on hindsight it would seem that they – and perhaps all of us – were living in interesting times. Chinese curse style interesting times.